Until early May of this year, trends in US macro fundamentals and US stock markets were ‘relatively’ well correlated. However, since the first stirrings of Taper concerns, the relationship has seemingly explicitly inverted. Day after day we see markets react to “good” or “bad” news but over time, as the following chart shows, the Fed’s total farce has been exposed. Simply put, if the last 7 months of market-macro relationships hold (which makes sense in a world entirely driven by Fed liquidity), the Bulls should be praying for the economic fundamentals to collapse or things will get painful fast for stocks.

As the following chart shows – each time fundamentals have ‘improved’ relative to expectations (as with this morning’s ISM), stocks have begun to lose altitude. The current wedge between macro reality and liquidity-inspired markets has not been greater in this cycle…

and at the same time – Treasuries re-synced…

But this time, stocks have already discounted in the Fed’s balance sheet for the next few months…

Oneonly has to look at the labor force to know things are never going back to the old normal and “blind faith” that fundamentals will recover enough to support the forward valuations that stocks have defies business cycle (and credit cycle) logic from here.